Glass-Steagall fans plan new assault if Volcker Rule deemed weak

Legislation planned to strengthen measures

“It is premature for anyone to take a victory lap when ‘too-big-to-fail’ policies are still alive and well,” Brown said in a statement last week. “Despite what some on Wall Street and in Washington may say, our work is not finished.”

It’s not just lawmakers and policy groups who favor a new Glass-Steagall -- the idea has support from some Wall Street veterans, too. Sanford “Sandy” Weill, whose creation of Citigroup Inc. ushered in the era of U.S. bank conglomerates in the 1990s, has said ending Glass-Steagall’s prohibitions was a mistake.

“What we should probably do is go and split up investment banking from banking,” Weill said in a 2012 interview on CNBC. “Have banks do something that’s not going to risk the taxpayer dollars, that’s not going to be too-big-to-fail.”

Douglas Elliott, a former investment banker who is now a fellow at the Brookings Institution research group in Washington, said that in the years since Dodd-Frank was enacted, the Volcker rule has taken on outsized importance to anti-Wall Street activists.

‘Bad Stuff’

“There seems to be this feeling that cutting off proprietary trading eliminates all of the bad stuff on Wall Street,” Elliott said in an interview. “I’m puzzled as to why so many chips have been placed on this rather than other issues progressives care about on financial reform.”

Regulators released their first version of the Volcker rule in 2011, which made an attempt to define the two kinds of trades Congress said should be permitted: hedging and market-making. Those who wanted tougher curbs got a boost in early 2012 when New York-based JPMorgan acknowledged botchedderivatives bets that eventually caused more than $6.2 billion in losses.

Glass-Steagall advocates including Naylor of Public Citizen recognize the irony that the best argument for their side came from one of the banks fighting it. They have intensified their lobbying in the homestretch.

“If the Volcker rule comes out weak, then we’re going to go all in on getting even more ambitious financial reform,” Naylor said.

Administration Open

While the Obama administration hasn’t endorsed a Glass- Steagall 2.0, it has signaled willingness to consider additional action if the current regulatory structure is deemed inadequate.

“Earlier this year, I said if we could not with a straight face say we ended ‘too-big-to-fail,’ we would have to look at other options,” Treasury Secretary Jacob J. Lew said in a speech last week in Washington. “Based on the totality of reforms we are putting in place, I believe we will meet that test, but to be clear, there is no precise point at which you can prove with certainty that we have done enough. If, in the future, we need to take further action, we will not hesitate.”